Thursday, October 31, 2013

With Obamacare making the news cycle
on a daily basis since its launch, I wanted to examine America's health care
situation from another vantage point, that of health care spending, prices and
quality and see how the U.S. health care situation compares to its OECD peers.

A 2012 study by David Squires of The Commonwealth Fund, a private foundation that aims to promote high performing
health care systems, analyzes data from 13 industrialized nations including
Australia, Canada, France, Germany, Japan, New Zealand, the United Kingdom and
the United States among others. As you can see on this graph, the United
States (black line) spends far more on a per capita basis on health care than any other
OECD nation:

An important issue to note from this
graph is the fact that per capita spending on U.S. health care is rising far
faster than all other OECD nations in the study, a prospect that is not healthy
for consumers.

On a per capita basis, health
spending in the United States (in 2009) came in at $7960 annually, more that
double the OECD median of $3182 and nearly three times Japan's $2878. The
author of the report further break down spending on health by the source of
funding (i.e. whether it is private or public). Private funding of U.S.
health spending is the largest among its OECD peers by a huge margin, coming in
at $3189 per capita per year. The second highest national private health
spending was found in Canada with $646, less than one-fifth of the U.S. level.
Norway comes in last place in private spending on health with per capita
private spending of only $43.

Moving on, here is a graph that
shows the total expenditures on health as a percentage of GDP, again, with the
U.S. data in black:

In total, health spending in the
United States was 17.4 percent of GDP, well above second place Netherlands
which came in at 12.0 percent of GDP. In last place was Japan which
spends only 8.5 percent of GDP on health care. Interestingly, Japan's low
cost of health spending is closely related to its cost control through aggressive price regulation through the
imposition of a nation-wide fee schedule. While this may appear to be a
solution to extremely high costs, some health care economists suggest that price
regulation can create shortages of service, reduce the quality of service and
stunt innovation. As well, Japanese doctors work an average of 71 hours
per week compared to 51 hours per week in the United States because they are
forced to prioritize quantity of service as opposed to quality of service for
patients. Japan's policies may also have created a severe shortage of
some specialists since there is more money to be made in general practice than
in money-losing specialities like surgery and obstetrics.

Why is American spending on health
care so much higher than other developed economies? One potential
explanation suggests that the high level of spending on health care in the U.S.
is related to the aging population, however, this is not borne out
statistically. While the U.S. population is aging, thanks in no small part to the hordes of
baby boomers, the United States has a very low percentage of elderly (over 65
years of age) compared to its OECD counterparts and, at 13.0 percent, comes in
well below the OECD median of 15.8 percent, as shown on this chart:

In fact, only New Zealand has a
lower percentage of citizens over the age of 65 than the United States, coming
in at 12.8 percent. The nation with the highest percentage of older
citizens is Japan which, oddly enough, has the lowest per capita and overall
spending on health care.

Obviously, there are other factors
at play that explain the high overall spending on health care in the United
States. Here are five of them:

1.) Obesity: When obesity is
defined as having a body mass index of 30 or more, 33.8 percent of Americans
were considered obese in 2009. This is the highest rate among all
thirteen OECD nations in the study; New Zealand came in second place at 26.5
percent and Australia came in third place at 24.6 percent. Coming in last
place was Japan at only 3.9 percent. Since there is a connection between
obesity and health issues, a higher level of health service utilization
accompanies a population that is obese.

2.) Hospital Costs: The United
States has fewer hospital beds at 2.7 per thousand population than the OECD
median of 3.2 beds per thousand. The duration of hospital stays in the
United States is shorter than the OECD median coming in at 5.4 days compared to
the median of 5.9 across the OECD study group. This is well below
Canada's 7.7 days and the 7.5 days in both Germany and Switzerland but above
Sweden's 4.5 days. All that said, the cost of individual hospital stays in the
United States is, by a very wide margin, the highest among the 13 nations as
shown on this graph:

3.) Prescription Costs: As
shown on this chart, the cost of most commonly prescribed drugs varies greatly
among the OECD nations (the cost of the drugs is set a 1.00 for the United
States):

While the cost of generic drugs is
relatively low in the United States (second lowest after New Zealand), the cost
of brand name drugs is the highest among all thirteen nations and is between
two and three times more costly than in every other nation except Canada.
As a result, overall drug costs in the United States are nearly twice as
high as the OECD median.

4.) Physicians' Fees: The cost
of a visit to a primary care physician in the United States is the highest in
the study, coming in at $133 for private payer compared to the median of $104.
These higher fees for physician services have resulted in this:

...and this:

5.) The Penetration and Usage of Diagnostic
Equipment: The United States has among the highest number of MRI machines
per million population among the nations in the study at 25.9, coming in second
place to Japan at 43.1 per million population. The OECD median is 8.9 MRI
machines per million population. This compares to 8 machines per million
for Canada and 5.9 per million for Australia. Physicians in the U.S. are
also more likely to recommend the use of MRI for their patients; 91.2 exams per
population population, the highest among its OECD peers and more than twice the
median of 43 per thousand population. The number of CT scanners per million
population in the United States (34.3 scanners per million) is also more than
twice the OECD median of 15.1 per million and the number of CT scans (227.9
scans per thousand) is also nearly twice the OECD median of 122.8 exams per
thousand.

Now, you might say that all of the
money spent on health care in the United States leads to better outcomes and
better overall health. As shown on this graph which shows the five year
survival rate for three common cancers, outcomes in the United States are not
markedly better than its peers:

While this is just a partial measure of health care efficacy, it is symptomatic of the problems facing the American health care system.

While the introduction of Obamacare
will help millions of uninsured Americans, this analysis by the Commonwealth Fund
shows that there are underlying issues in the U.S. health care system that the implementation of universal health insurance will not be able to cure. Until there is some way of controlling costs, Americans will find themselves laying out more than their OECD counterparts for health care either through out-of-pocket spending or through rising health care premiums and taxes.

2 comments:

Thanks for highlighting obesity as one of the drivers of healthcare cost. This huge problem is growing larger, it already cost America over $190 billion a year. Obesity accounts for about 21% of the amount spent on medical services and is set to rise much higher. If current trends continue, by 2030 the estimate is obesity will probably cost the country $550 billion a year. One third of adult Americans are overweight, and another third are obese according to the National Center for Health Statistics. More ominously, almost a third of those under 20 years of age are overweight or obese. More on the cost of this growing problem below,

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.